Fonterra is cautiously optimistic falling dairy markets may have turned, citing a 25.8% increase in average whole-milk powder prices paid at its latest Internet-based globalDairyTrade auction on Tuesday night.
Nigel Kuzemko, the commercial and strategy director with Fonterra Trade and Operations, said while globalDairyTrade was one sale point at one time, the price increase was market-driven and a sign its customers had low inventory levels.
The improvement occurred despite the United States Department of Agriculture last week increasing by 15% its export price subsidy for skim-milk powder, a further indication of upward price pressure for dairy products.
It is certainly good news for farmers, Mr Kuzemko said in an interview.
The average price for whole-milk powder supplied in the auction's nine-month contract period was $NZ3434 ($US2301) a tonne, $704 ($US472) a tonne higher than July's auction prices.
Contract prices ranged from $3336 ($US2235) a tonne to $3776 ($US2530) a tonne, taking values back to levels previously seen last November and December, but still less than half the peak reached in 2007.
Federated Farmers has welcomed the increased prices, but its dairy section chairman Lachlan McKenzie said the volatile prices of the past three auctions were a concern.
The federation has been a harsh critic of globalDairyTrade and Mr McKenzie questioned if the trading system was adding to price volatility.
The federation still does not understand the long-term strategy underpinning globalDairyTrade.
The federation believed Fonterra was missing out on realising substantial value, which came by being a trusted food component supplier, he said.
For the first time, whole-milk powder supplied from Fonterra's Australian business was included in the auction, and prices mirrored those paid for New Zealand product.
While the sale was cause for some optimism, Mr Kuzemko said prices were likely to continue to be volatile due in part to customers maintaining low stocks and buying as needed.
The 25.8% rise in August prices followed a 3% decline in July and a 16% rise in March.
Mr Kuzemko said dairy prices appeared to be following other commodities which had firmed in recent weeks, the price of corn having risen 10% and aluminium 8%.
The New Zealand dollar breached the US67c mark in recent days and Mr Kuzemko said the US dollar was weak against most key currencies, yet Fonterra's customers showed loyalty to the co-operative through the auction.
He said globalDairyTrade provided long-term market information from customers and the most recent auction reinforced Fonterra's optimism about the long-term prospects for dairy products.
But any permanent price recovery could be hampered by several factors, such as exchange-rate movement and export-price intervention by the US and European Union governments.
"We're still bouncing around . . . but we are probably getting up to around sustainable levels," he said.
